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Dougherty v. Esperion Therapeutics, Inc.

United States District Court, E.D. Michigan, Southern Division

December 27, 2016

Kevin L. Dougherty, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
Esperion Therapeutics, Inc., et al., Defendants.

          R. Steven Whalen, U.S. Magistrate Judge.


          Arthur J. Tarnow, Senior United States District Judge.

         Before the Court is a securities fraud class action against Esperion, a clinical stage pharmaceutical company, and its Chief Executive Officer, Tim M. Mayleben. Plaintiffs, a class of investors who purchased Esperion common stock between August 18, 2015 and September 28, 2015, allege that Defendants violated §§10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The underlying question that drives this dispute is whether FDA approval of ETC-1002, Esperion's lead product, requires Esperion to conduct a cardiovascular outcomes trial (“CVOT”) to assess the drug's lipoprotein cholesterol-lowering efficacy in patients who suffer from certain types of cardiovascular problems.

         Esperion allegedly made false statements to Plaintiffs about what occurred at an August 2015 meeting between Esperion and the U.S. Food and Drug Administration (“FDA”), and failed to disclose material facts about the development of ETC-1002, a medication designed to lower elevated levels of lipoprotein cholesterol (“LDL-C”). Esperion's deceit regarding its business, according to Plaintiffs, operated as a fraud and caused Plaintiffs to transact in Esperion common stock at artificially inflated prices. Essentially, “[h]ad Plaintiffs . . . known the truth regarding the problems[1] that Esperion was experiencing, which Defendants did not disclose, Plaintiffs . . . would not have transacted in Esperion common stock.” (Compl. ¶ 74).

         Defendants argue that Plaintiffs' action is a “fraud by hindsight” case, exactly the kind that the Private Securities Litigation Reform Act (“PSLRA”) was designed to prevent. They characterize this as a “knee jerk lawsuit by opportunistic plaintiffs whenever a company's stock price drops.” (Dkt. 30, Defs.' Br. at Pg. ID 580). Defendants ask the Court to dismiss the Complaint for three reasons: 1) there can be no strong inference of scienter when Plaintiffs have not alleged that Defendants knew that any statements were materially false or misleading when made; 2) Plaintiffs have not specified why or how any statements were misleading when made; and 3) Defendants' statements were forward-looking and therefore immune from liability under the PSLRA.

         The Court will GRANT Defendants' Motion to Dismiss. The PSLRA imposes strict pleading requirements that Plaintiffs have failed to satisfy. The Court finds that Plaintiffs have not stated with particularity any facts giving rise to a strong inference that Defendants acted with a knowing and deliberate intent to manipulate, deceive, or defraud. See Frank v. Dana Corp., 646 F.3d 954, 959 (6th Cir. 2011). Furthermore, a reasonable person would conclude that the inference of scienter in this case is not as strong as the opposing inference of non-culpability. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 326 (2007); Kuyat v. BioMimetic Therapeutics, Inc., 747 F.3d 435, 441 (6th Cir. 2014).

         Factual Background

         Because Defendants move to dismiss Plaintiffs' complaint under Federal Rule of Civil Procedure 12(b)(6), the Court sets forth Plaintiffs' non-conclusory allegations as fact. See Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009); LULAC v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (explaining that the plaintiff's factual allegations, while “assumed to be true, must do more than create speculation or suspicion of a legally cognizable cause of action; they must show entitlement to relief) (emphasis in original).

         The FDA regulates drugs and the drug development process under the Federal Food, Drug, and Cosmetic Act (“FDCA”). Before a drug is marketed in the U.S., a drug sponsor, such as Esperion, must, among other things, complete nonclinical laboratory tests and submit a New Drug Application (“NDA”) to the FDA. Navigating the approval process requires the expenditure of substantial time and financial resources. The process is often complex, expensive, and uncertain, and, depending on how the development of the product advances, may be subject to delays, limits, or changes.

         In its short lifespan, [2] Esperion has focused exclusively on developing and commercializing ETC-1002, an oral, once-daily, small molecule designed to lower elevated levels of lipoprotein cholesterol (“LDL-C”) and to avoid side effects associated with other LDL-C lowering medications on the market. Though most people use statins (cholesterol-lowering drugs) to reduce their LDL-cholesterol levels, statins are known to cause serious side effects and may interact adversely with other drugs.[3] Esperion estimates that “2-7 million U.S. adults are intolerant of statin therapy due to muscle pain or weakness associated with their use.” (Dkt. 30-2, Defs.' Ex. A at Pg. ID 613). ETC-1002 is designed to provide an alternative treatment to statin-intolerant individuals, and may also be used as an add-on therapy for individuals who cannot reach their recommended LCL-cholesterol goals despite the use of a statin. Id. at Pg. ID 617.

         I. August 17, 2015 Press Release and Conference Call.

         Esperion met with the FDA after completing Phase 2b clinical trials for ETC-1002 in August 2015. It subsequently issued a press release on August 17, 2015, in which it provided updates on the ETC-1002 development program. The press release contained the following relevant statements:

. LDL-C remains an acceptable clinical surrogate endpoint for the approval of an LDL-C lowering therapy such as ETC-1002 in patient populations who have a high unmet medical need, including patients with heterozygous familial hypercholesterolemia (“HeFH”)[4] or clinical atherosclerotic disease (“ASCVD”)[5], who are already taking maximally tolerated statins yet require additional LDL-C reduction and where there is a positive benefit/risk ratio;
. Based on feedback from the FDA, approval of ETC- 1002 in the HeFH and ASCVD patient populations will not require the completion of a cardiovascular outcomes trial (CVOT).
. The Company continues to plan and initiate a CVOT prior to NDA [“New Drug Application”] filing to pursue broader label indications related to cardiovascular disease reduction.

         The final section of the press release informed readers that “[f]orward-looking statements involve risks and uncertainties that could cause Esperion's actual results to differ significantly from those projected, including . . . the risk that FDA may require additional studies or data prior to approval that might cause approval to be delayed.” (Dkt. 30-5, Defs.' Ex. D at Pg. ID 640). It also stated: “Esperion may need to change the design of its Phase 3 program once final minutes from the FDA meeting are received.” Id.

         Esperion held a conference call and webcast with investors on August 17, after issuing the press release, to discuss the contents of the press release and Esperion's meeting with the FDA. In his opening remarks, CEO Mayleben confirmed that the FDA had determined that “LDL cholesterol lowering remains an acceptable clinical surrogate endpoint for the potential approval of a therapy such as 1002.” (Dkt. 30-6, Defs.' Ex. E at Pg. ID 644). He also assured participants that the company's commitment to conducting a cardiovascular outcomes trial . . . remains intact, ” both for commercial purposes and “for the broader label indications related to cardiovascular disease risk reduction that can be achieved.” Id. at Pg. ID 645. He noted that Esperion “expect[s] to initiate the CVOT late next year or in early 2017 such that the CVOT will be underway by the time of our NDA submission.” Id. Several minutes later, Mr. Mayleben stated, “[w]e know that 1002 will not require a CV outcomes trial to be completed prior to approval in patients with heterozygous FH and ASCVD, those patient populations that FDA considers to have an appropriate benefit/risk ration.” Id. When discussing his thoughts about the Phase 3 program, Mayleben said that “the long-term potential here is the second step, which is to be able to complete and report out a positive CV outcomes trial.” Id. at Pg. ID 649. Throughout the call, Mayleben emphasized that the company could not comment in depth until it received the final minutes from the FDA; in response to one analyst's question, he said that Esperion has “zero interest in front running the FDA on this. The FDA's minutes are the only minutes that matter, and so we're going to wait for those minutes.” Id. at Pg. ID 652.

         II. September 28, 2015 Press Release and Conference Call

         Esperion received the FDA's End-of-Phase 2 final meeting minutes on September 28, 2015, and promptly issued a press release with an update on the ETC-1002 development program. Esperion declared “[the] FDA has encouraged the Company to initiate a cardiovascular outcomes trial promptly, which would be well underway at the time of the New Drug Application submission and review.” (Dkt. 30-7, Defs.' Ex. F at Pg. ID 657) (emphasis added).

         Esperion convened another conference call and webcast for investors later that day. CEO Mayleben began the call by telling participants that Esperion's “commitment to initiating a cardiovascular outcomes trial and having it well underway at the time of NDA submission remains intact.” (Dkt. 30-8, Defs.' Ex. G at Pg. ID 663). Mayleben also cautioned,

Historically and most recently, LDL has been an approval surrogate marker for LDL-cholesterol-lowering drugs. What happens in the future, I think is, it is something that we will find out along with the rest of the world as this dynamic therapeutic area continues to evolve.

Id. at Pg. ID 665.

         In response to a question regarding the need for a completed cardiovascular outcomes trial prior to FDA approval, and the inconsistency in language between the two press releases, Mayleben explained, “we're trying to . . . balance the . . . history of using LDL-cholesterol as an accepted surrogate . . . with what the future may be given the fact that there are at least 4 CV outcomes trials ongoing now that will certainly read on whether LDL remains an accepted surrogate.” Id. at Pg. ID 666. Mayleben also repeatedly emphasized that the development of ETC-1002 “is a very dynamic therapeutic area.” Id. at Pg. ID 665.

         The market reacted negatively in the days following Esperion's September 28 press release and conference call. The company's stock price fell from $35.09 per share to $18.33 per share; Plaintiffs say that this is a “one-day decline of 48% on massive volume of 9.9 million shares, or almost 8 times the average daily trading ...

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